Asia fore­casts cut, no China hard land­ing: WB

The World Bank on Mon­day cut its growth fore­casts for de­vel­op­ing economies in East Asia and the Pa­cific but al­layed fears of a hard land­ing for main­land China’s slow­ing econ­omy.

The bank also said it ex­pects any in­crease in U.S. in­ter­est rates to have an or­derly im­pact but warned of a risk that mar­kets could re­act sharply, caus­ing re­gional cur­ren­cies to fall fur­ther.

In a re­port on 14 economies led by China, the bank called on them to mit­i­gate the im­pact of the slow­ing Chi­nese econ­omy and any in­crease in U.S. rates by adopt­ing “pru­dent macro-eco­nomic man­age­ment” and deeper struc­tural re­forms.

“The base­line growth pro­jec­tions for China as­sume a fur­ther grad­ual slow­down in 2016-17,” the bank said, play­ing down con­cerns that the world’s sec­ond largest econ­omy could slow down abruptly fol­low­ing stock mar­ket tur­moil and a soft­en­ing man­u­fac­tur­ing sec­tor.

“China has suf­fi­cient pol­icy buf­fers to ad­dress these risks and pre­vent a sharp slow­down,” it said.

In its up­dated out­look for the re­gion, the bank said China’s gross do­mes­tic prod­uct (GDP) is ex­pected to grow by 6.9 per­cent this year, mod­er­at­ing to 6.7 per­cent next year and 6.5 per­cent in 2017. GDP rose 7.3 per­cent in 2014.

The fore­casts were slightly lower than the bank’s pro­jec­tions in April.

For de­vel­op­ing economies in the East Asia-Pa­cific re­gion, av­er­age growth is forecast at 6.5 per­cent this year, 6.4 per­cent next year and 6.3 per­cent in 2017. This is down from 6.8 per­cent ac­tual growth in 2014.

Among the big­ger South­east Asian coun­tries, the Philip­pines and Viet­nam are ex­pected to be the stronger per­form­ers as weak com­mod­ity prices hob­ble growth in oil ex­porters In­done­sia and Malaysia.

The Philip­pine econ­omy is forecast to grow by 5.8 per­cent this year, 6.4 per­cent next year and 6.2 per­cent in 2017, com­pared with 6.1 per­cent in 2014.

Viet­nam’s GDP is forecast to rise from 6.0 per­cent in 2014 to 6.2 per­cent this year and 6.3 per­cent each over the next two years.

For Malaysia, growth is ex­pected at 4.7 per­cent this year and in 2016 and 5.0 per­cent in 2017, down sharply from 6.0 per­cent in 2014.

In­done­sian growth should come in at 4.7 per­cent this year, 5.3 per­cent next year and 5.5 per­cent in 2017, com­pared to 5.0 per­cent in 2014.

The bank said it ex­pects the U.S. cen­tral bank to raise in­ter­est rates in the com­ing months, which could prompt cap­i­tal to flow back into the U.S. econ­omy from emerg­ing mar­kets in search of bet­ter re­turns.

“While this in­crease has been an­tic­i­pated and is likely to prove or­derly, there is a risk that mar­kets could over­re­act in the short term,” it warned.

“The risks to global and re­gional growth, and to the cost and avail­abil­ity of ex­ter­nal fi­nanc­ing, call for a con­tin­ued fo­cus across the re­gion on sound macroe­co­nomic man­age­ment and on mit­i­gat­ing ex­ter­nal and fis­cal vul­ner­a­bil­i­ties.”

Axel van Trot­sen­burg, the bank’s re­gional vice pres­i­dent, said in a state­ment the re­forms must in­clude “reg­u­la­tory im­prove­ments in fi­nance, la­bor, and prod­uct mar­kets, as well as mea­sures that en­hance trans­parency and ac­count­abil­ity.”